Properties of the Week: Every Single One of Them

April 19, 2012

… at least, judging by the way places are flying off the market in multiple-bid situations that go well over asking price.

Right now, the Cambridge, Somerville, Arlington and Medford (and I hear Boston and many other local real estate markets) are on fire. This is making home sellers very happy, while exasperating home buyers and their agents. Here’s a little explanation of the situation:

Since the “peak” in local real estate around 2005/2006, home prices had–until now–been relatively stable. However, for a variety of reasons (low inventory, pent-up demand, renewed consumer confidence…), this spring we’re seeing a TON of buyers out there who really want to buy and are willing to pay top dollar.

Listing agents are still getting a handle on this trend, which I don’t think anyone anticipated, and are also aware of the need to show viable “comps” (similar properties that have recently sold) for financing purposes. Therefore, most properties are still being listed at similar price points as where they would have been 3 to 6 months ago.

However, a property is worth exactly what one person is willing to pay for it, and what we’re seeing now (increasingly every week it seems) is that the current pool of home buyers are willing to pay much higher prices than are being asked, and so we’re getting into multiple-bid situations on almost every property, with offers going substantially over the list price. When these sales close, the comps will go up, and list prices will begin to rise to the point where they will eventually catch up with the current demand and be more reflective of actual current market value.

In the meantime, we can expect that many places hitting the market in the coming weeks will continue to be priced according to past comps (with their outdated market values), leading to multiple offers and resulting in (often substantially) over-asking-price sales.

To succeed in this market, buyers and their agents have to develop a new mindset, to some extent disregarding other the comps, a home’s assessed value, and even its list price. This can be hard to do, and many buyers are worried about “overpaying” for a home in such a competitive market. But the reality is that if five buyers are willing to pay $30,000 or $60,000 over asking price, than that–not the asking price–IS the value of the property.

And while we certainly can’t predict future market values, if history is an indicator, prices could continue to rise for several months or years before we level off again, and today’s prices may seem like a bargain in hindsight.